6/24/2010 @ 10:51AM177 views

Video Game Co. Aims To Block $3M Movie Gallery Asset Sale

Online video game reseller Gamers Factory Inc. is aiming to block rival COKeM International Ltd. from buying over $3 million worth of video games and accessories from bankrupt Movie Gallery Inc. Gamers is demanding to be allowed to bid for the goods, saying its asking price for them would top COKeM’s by $50,000.

Gamers, a subsidiary of Game Trading Technologies Inc., lodged an objection to the proposed sale Wednesday in the U.S. Bankruptcy Court for the Eastern District of Virginia, where Movie Gallery’s Chapter 11 case has been under way since February.

Movie Gallery and COKeM asked the bankruptcy court to approve the $3.025 million asset sale on June 14, saying COKeM’s bid for the 600,000 new and used games and certain related gaming accessories represented the highest offer.

But Gamers said Wednesday it would pay at least $3.075 million for the inventory. The company asked the court to deny Movie Gallery and COKeM’s motion and allow it to bid for the assets.

Another video game reseller, Gametronics Inc., operating under the name LA Closeout, filed a similar motion Monday, saying it would shell out at least $3.05 million for the assets.

Judge Diana Morehead, who is overseeing the bankruptcy of Movie Gallery and its affiliated debtors, signed off May 21 on Movie Gallery’s $74.2 million asset sale agreement with liquidator Great American WF LLC, paving the way for closing sales at more than 1,000 Movie Gallery stores across the U.S.

The decision was a disappointment to Movie Gallery’s creditors committee, which had filed an objection to the Great American deal. The committee claimed that the transaction would jeopardize the creditors’ financial future because the bankrupt company had yet to resolve a cash collateral default and submit a liquidation budget, two tenets of its Chapter 11 plan term sheet.

Without addressing those two problems, the pre-petition secured parties would no longer be bound by the term-sheet agreement and would be free to leave the debtors’ estates administratively insolvent by ceasing their funding, the committee said.

Gordon Brothers Retail Partners LLC and Hilco Merchant Retailers LLC, which had been liquidating the company’s stores before the auction, filed their own limited objections to the deal.

The two liquidators argued that the Great American agreement’s breakup fee and expense reimbursement were not necessary — and therefore not justified — to foster a competitive auction for the liquidating job.

They asked that the auction take place either “without such burden” imposed on them or with their joint bid as the stalking horse offer.

But neither objection managed to derail the deal with Great American.

The movie rental chain’s Canadian affiliate announced earlier in June that it would shutter its 18 Canadian stores by the end of July.

Movie Gallery filed for Chapter 11 in February, blaming “direct and increasing competition from competitors such as Blockbuster, Netflix and Redbox and indirect competition from pay-per-view, cable television and big-box retailers who continue to sell DVDs at increasingly lower prices.”

The company listed assets between $10 million and $50 million with liabilities approaching $1 billion.

Movie Gallery previously filed for Chapter 11 protection in 2007 and emerged the following year after shuttering 1,700 stores.

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